What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-12-06 compared with 2023-06-07 · 46 added, 92 removed, 149 unchanged (48% of the section changed)

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(the “Company” or “Village”) was founded in 1937.

Village operates a chain of 34 supermarkets in New Jersey (26), New York (6), Maryland (1) and Pennsylvania (1) under the ShopRite and Fairway banners and four Gourmet Garage specialty markets in New York City.

Village operates a chain of 34 supermarkets in New Jersey (26), New York (6), Maryland (1) and Pennsylvania (1) under the ShopRite and Fairway banners and three Gourmet Garage specialty markets in New York City.

Village is the second largest member of Wakefern Food Corporation (“Wakefern”), the nation’s largest retailer-owned food cooperative and owner of the ShopRite, Fairway and Gourmet Garage names.

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The Company competes by providing a superior customer service experience, competitive pricing and a broad range of consistently available quality products.

The ShopRite Price Plus customer loyalty program enables Village to offer continuity programs, focus on target marketing initiatives and to offer discounts and attach digital coupons directly to a customer's Price Plus card.

The ShopRite Price Plus and Fairway Insider customer loyalty programs enable Village to offer continuity programs, focus on target marketing initiatives and to offer discounts and attach digital coupons directly to a customer's loyalty card.

Online grocery ordering for in-store pick up or home delivery is available in all of our ShopRite stores through shoprite.com, the ShopRite app or through third party service providers.

Additionally, the ShopRite Order Express app enables customers to pre-order deli, catering, specialty occasion cakes and other items.

Online ordering for home delivery is available in all Fairway and Gourmet Garage stores through third party service providers.

Online ordering for home delivery is available in all Fairway stores through fairwaymarket.com, the Fairway app or through third party service providers.

Online ordering for home delivery is available in all Gourmet Garage stores through gourmetgarage.com, the Gourmet Garage app or through third party service providers.

To promote production efficiency, product quality and consistency, the Company operates a centralized commissary supplying certain products in deli, bakery, prepared foods and other perishable product categories to all stores.

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Our Gourmet Garage specialty markets offer organic produce, signature soups and prepared foods, high-quality meat and seafood, charcuterie and gourmet cheeses, artisan baked bread and pastries, chef-prepared meals to go and pantry staples.

The Company has an ongoing program to upgrade and expand its supermarket chain.

The Company has an ongoing program to evaluate, upgrade and expand its supermarket chain.

This program has included store remodels as well as the opening or acquisition of additional stores.

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On August 14, 2022, we converted the Pelham, NY store from the Fairway banner to the ShopRite banner and a major remodel of the store was completed in late October 2022.

On April 29, 2022, Village opened a 14,600 sq.

Gourmet Garage in the West Village in Manhattan, NYC.

On November 1, 2023, Village closed an 8,400 sq.

Gourmet Garage store located in New York City.

The impact associated with the closure and ongoing results of operating were not material to Village’s consolidated financial statements.

We consider a variety of indicators to evaluate our performance, such as same store sales;

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and hourly labor rates.

NON-GAAP MEASURES

The accompanying Consolidated Financial Statements, including the related notes, are presented in accordance with generally accepted accounting principles ("GAAP").

We provide non-GAAP measures, including Adjusted net income and Adjusted operating and administrative expenses as management believes these supplemental measures are useful to investors and analysts.

These non-GAAP financial measures should not be reviewed in isolation or considered as a substitute for our financial results as reported in accordance with GAAP, nor as an alternative to net income, operating and administrative expense or any other GAAP measure of performance.

Adjusted net income and Adjusted operating and administrative expense are useful to investors because they provide supplemental measures that exclude the financial impact of certain items that affect period-to-period comparability.

Management and the Board of Directors use these measures as they provide greater transparency in assessing ongoing operating performance on a period-to-period basis.

Other companies may have different definitions of Non-GAAP Measures and provide for different adjustments, and comparability to the Company's results of operations may be impacted by such differences.

The Company's presentation of Non-GAAP Measures should not be construed as an implication that its future results will be unaffected by unusual or non-recurring items.

The following tables reconciles Net income (loss) to Adjusted net income and Operating and administrative expenses to Adjusted operating and administrative expenses:

13 Weeks Ended 39 Weeks Ended

2023 April 30,

2022 April 29,

2023 April 30,

Net Income (loss) $ 11,017 $ (3,231) $ 34,422 $ 14,227

Adjustments to Operating Expenses:

Litigation settlement gain (1) $ (1,200) $ — $ (1,200) $ —

Pension termination and settlement charges (2) — 12,296 — 12,296

Adjustments to Income Taxes:

Tax impact of adjustments to operating expenses 372 (3,780) 372 (3,780)

Adjusted net income $ 10,189 $ 5,285 $ 33,594 $ 22,743

Operating and administrative expenses $ 128,787 $ 137,751 $ 384,452 $ 385,521

Adjustments to operating and administrative expenses 1,200 (12,296) 1,200 (12,296)

Adjusted operating and administrative expenses $ 129,987 $ 125,455 $ 385,652 $ 373,225

Adjusted operating and administrative expenses as a % of sales 24.56 % 24.99 % 23.91 % 24.34 %

(1) Fiscal 2023 litigation settlement gains are related to claims associated with the Fairway acquisition and liabilities associated thereto.

(2) Fiscal 2022 pension settlement charges related primarily to the termination of the Village Super Market, Inc.

Employees’ Retirement Plan.

The Company contributed cash of $1,440 to fully fund the plan and the remaining $10,856 represents non-cash charges for unrecognized losses within accumulated other comprehensive loss as of the termination date.

RESULTS OF OPERATIONS

The following table sets forth the major components of the Consolidated Statements of Operations as a percentage of sales:

13 Weeks Ended 39 Weeks Ended

April 29, 2023 April 30, 2022 April 29, 2023 April 30, 2022

13 Weeks Ended

October 28, 2023 October 29, 2022

Sales 100.00 % 100.00 %

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Depreciation and amortization 1.59 1.65

Operating income (loss) 2.64 (0.85) 2.81 1.37

Operating income 2.64 2.92

Interest expense (0.20) (0.21)

Interest income 0.71 0.38

Income (loss) before income taxes 3.04 (0.86) 3.10 1.36

Income before income taxes 3.15 3.09

Income taxes 0.99 0.96

Net income (loss) 2.08 % (0.64) % 2.13 % 0.93 %

Sales were $529,294 in the 13 weeks ended April 29, 2023, an increase of 5.4% compared to the 13 weeks ended April 30, 2022.

Sales increased due to an increase in same store sales of 3.4%, the opening of a Gourmet Garage in the West Village in Manhattan, NY on April 29, 2022 and increased sales due to the remodel and conversion of the Pelham, NY Fairway to the ShopRite banner on August 15, 2022.

Same store sales increased due primarily to retail price inflation.

Sales were $1,612,848 in the 39 weeks ended April 29, 2023, an increase of 5.2% compared to the 39 weeks ended April 30, 2022.

Sales increased due to an increase in same store sales of 3.6%, the opening of a Gourmet Garage in the West Village in Manhattan, NY on April 29, 2022 and increased sales due to the remodel and conversion of the Pelham, NY Fairway to the ShopRite banner on August 15, 2022.

Net income 2.16 % 2.13 %

Sales were $536,354 in the 13 weeks ended October 28, 2023, an increase of 3.2% compared to the 13 weeks ended October 29, 2022.

Sales increased due to an increase in same store sales of 2.0% and increased sales due to the remodel and conversion of the Pelham, NY Fairway to the ShopRite banner on August 15, 2022.

Same store sales increased due primarily to retail price inflation.

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Gross Profit .

Gross profit as a percentage of sales increased .36% in the 13 weeks ended April 29, 2023 compared to the 13 weeks ended April 30, 2022 due primarily to increased departmental gross margin percentages (.47%) and decreased LIFO charges (.04%) partially offset by increased warehouse assessment charges from Wakefern (.14%).

Gross profit as a percentage of sales increased .10% in the 39 weeks ended April 29, 2023 compared to the 39 weeks ended April 30, 2022 due primarily to increased departmental gross margin percentages (.23%) partially offset by increased LIFO charges (.12%).

Gross profit as a percentage of sales decreased .21% in the 13 weeks ended October 28, 2023 compared to the 13 weeks ended October 29, 2022 due primarily to higher promotional spending (.22%), increased warehouse assessment charges from Wakefern (.20%) and an unfavorable change in product mix (.14%) partially offset by increased departmental gross margin percentages (.36%).

Department gross margins increased due primarily to improvements in commissary operations.

Operating and Administrative Expense.

Operating and administrative expense as a percentage of sales decreased 3.11% in the 13 weeks ended April 29, 2023 compared to the 13 weeks ended April 30, 2022.

Adjusted operating and administrative expense as a percentage of sales decreased .43% in the 13 weeks ended April 29, 2023 compared to the 13 weeks ended April 30, 2022 due primarily to lower labor costs and fringe benefits (.35%) and decreased supply spending (.19%) partially offset by increased facility costs (.07%).

Labor costs and fringe benefits decreased due primarily to sales leverage and ongoing productivity initiatives partially offset by minimum wage and market-driven pay rate increases.

Operating and administrative expense as a percentage of sales decreased 1.30% in the 39 weeks ended April 29, 2023 compared to the 39 weeks ended April 30, 2022.

Adjusted operating and administrative expense as a percentage of sales decreased to .43% in the 39 weeks ended April 29, 2023 compared to the 39 weeks ended April 30, 2022 due primarily to lower labor costs and fringe benefits (.32%) and decreased supply spending (.16%).

Labor costs and fringe benefits decreased due primarily to sales leverage and ongoing productivity initiatives partially offset by minimum wage and market-driven pay rate increases.

Operating and administrative expense as a percentage of sales increased .13% in the 13 weeks ended October 28, 2023 compared to the 13 weeks ended October 29, 2022 due primarily to increased facility repair and maintenance costs (.10%), security costs (.07%) and external fees associated with digital sales (.05%) partially offset by lower labor costs and fringe benefits (.10%).

Depreciation and Amortization .

Depreciation and amortization expense increased in the 13 and 39 weeks ended April 29, 2023 compared to the 13 and 39 weeks ended April 30, 2022 due primarily to capital expenditures.

Depreciation and amortization expense in the 13 weeks ended October 28, 2023 was flat compared to the 13 weeks ended October 29, 2022.

Interest Expense .

Interest expense increased in the 13 and 39 weeks ended April 29, 2023 compared to the 13 and 39 weeks ended April 30, 2022 due primarily to higher average outstanding debt balances.

Interest expense in the 13 weeks ended October 28, 2023 was flat compared to the 13 weeks ended October 29, 2022.

Interest Income .

Interest income increased in the 13 and 39 weeks ended April 29, 2023 compared to the 13 and 39 weeks ended April 30, 2022 due primarily to higher interest rates and larger amounts invested in variable rate notes receivable from Wakefern and demand deposits at Wakefern.

Interest income increased in the 13 weeks ended October 28, 2023 compared to the 13 weeks ended October 29, 2022 due primarily to higher interest rates and larger amounts invested in variable rate notes receivable from Wakefern and demand deposits at Wakefern.

Income Taxes.

The effective income tax rate was 31.6% in the 13 weeks ended April 29, 2023 compared to 25.4% in the 13 weeks ended April 30, 2022.

The 13 weeks ended April 30, 2022 includes the recognition of a discrete tax benefit related to the pension termination settlement charge recognized in the quarter.

Excluding the impact of the pension termination settlement charge and related discrete tax benefit, the effective income tax rate was 33.7% in the 13 weeks ended April 30, 2022.

The decrease in the effective income tax rate is due primarily to a lesser impact of unfavorable return to provision adjustments in the 13 weeks ended April 29, 2023 compared to the 13 weeks ended April 30, 2022.

The effective income tax rate was 31.2% in the 39 weeks ended April 29, 2023 compared to 31.7% in the 39 weeks ended April 30, 2022.

The decrease in the effective income tax rate is due primarily to a lesser impact of unfavorable return to provision adjustments in the 39 weeks ended April 29, 2023 compared to the 39 weeks ended April 30, 2022.

Net Income was $11,017 in the 13 weeks ended April 29, 2023 compared to a net loss of $3,231 in the 13 weeks ended April 30, 2022.

Adjusted net income was $10,189 in the 13 weeks ended April 29, 2023, an increase of 93% compared to $2,297 in the 13 weeks ended April 30, 2022.

Net income was $34,422 in the 39 weeks ended April 29, 2023 compared to $14,227 in the 39 weeks ended April 30, 2022.

Adjusted net income was $33,594 in the 39 weeks ended April 29, 2023, an increase of 48% compared to $10,213 in the 39 weeks ended April 30, 2022.

The effective income tax rate was 31.5% in the 13 weeks ended October 28, 2023 compared to 31.0% in the 13 weeks ended October 29, 2022.

Net Income was $11,585 in the 13 weeks ended October 28, 2023 compared to $11,081 in the 13 weeks ended October 29, 2022.

Net income increased 5% compared to the prior year due primarily to the increase in sales of 3.2% and higher interest income.

CRITICAL ACCOUNTING POLICIES

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These policies require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

The Company’s critical accounting policies relating to the impairment of long-lived assets, goodwill and indefinite-lived intangible assets, accounting for patronage dividends earned as a stockholder of Wakefern and accounting for pension plans, are described in the Company’s Annual Report on Form 10-K for the year ended July 30, 2022.

A s of April 29, 2023, there have been no changes to the critical accounting policies contained therein.

The Company’s critical accounting policies relating to the impairment of long-lived assets, goodwill and indefinite-lived intangible assets and accounting for patronage dividends earned as a stockholder of Wakefern, are described in the Company’s Annual Report on Form 10-K for the year ended July 29, 2023.

A s of October 28, 2023, there have been no changes to the critical accounting policies contained therein.

The preparation of financial statements in conformity with U.S.

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LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities was $68,244 in the 39 weeks ended April 29, 2023 compared to $51,702 in the corresponding period of the prior year.

The change in cash flows from operating activities in fiscal 2023 was primarily due to higher net income adjusted for non-cash items and changes in working capital.

Working capital changes, including Other assets and liabilities, increased cash flows from operating activities by $3,525 in fiscal 2023 compared to an increase of $1,279 in fiscal 2022.

The change in impact of working capital is due primarily to a lesser increase in merchandise inventories in fiscal 2023 compared to fiscal 2022, the timing of tax payments, accounts payable to Wakefern and accrued wages and benefits.

During the 39 weeks ended April 29, 2023, Village used cash to fund capital expenditures of $35,689, dividends of $9,845, principal payments of long-term debt of $7,764, an investment in a real estate partnership for the development of a retail center in Old Bridge, New Jersey of $4,268 and additional net investments of $34,415 in notes receivable from Wakefern.

Capital expenditures primarily include costs associated with the remodel and conversion of the Pelham, NY Fairway to the ShopRite banner, the new Gourmet Garage store in the West Village of New York City, the purchase of the Vineland

store shopping center, installation of electronic shelf labels, continued expansion of self-checkout, and various technology, equipment and facility upgrades.

We have revised our budgeted capital expenditures downward from prior estimates to approximately $50,000 in fiscal 2023 due to the timing of construction spends for replacement stores shifting from fiscal 2023 into fiscal 2024.

Planned expenditures include costs for construction of three replacement stores scheduled to open in fiscal 2024 and fiscal 2025, two major remodels, including the conversion of the Pelham, NY store from the Fairway to the ShopRite banner, the purchase of the Vineland store shopping center, several smaller store remodels and merchandising initiatives, installation of electronic shelf labels in six stores, continued expansion of self-checkout, and various technology, equipment and facility upgrades.

The Company’s primary sources of liquidity in fiscal 2023 are expected to be cash and cash equivalents on hand at April 29, 2023 and operating cash flow generated in fiscal 2023.

On April 28, 2022, the Company entered into a partnership agreement for 30% interest in the development of a retail center in Old Bridge, New Jersey, which includes a Village replacement store with future lease obligations of $9,280.

Net cash provided by operating activities was $18,379 in the 13 weeks ended October 28, 2023 compared to $22,019 in the corresponding period of the prior year.

The change in cash flows from operating activities in fiscal 2024 was primarily due to changes in working capital.

Working capital changes, including Other assets and liabilities, decreased cash flows from operating activities by $3,317 in fiscal 2024 compared to an increase of $756 in fiscal 2023.

The change in impact of working capital is due primarily to the timing of tax payments.

During the 13 weeks ended October 28, 2023, Village used cash to fund capital expenditures of $13,773, dividends of $3,350, principal payments of long-term debt of $2,698, share repurchases of $782, an investment in a real estate partnership for the development of a retail center in Old Bridge, New Jersey of $1,813 and additional net investments of $2,139 in notes receivable from Wakefern.

Capital expenditures primarily include costs associated with the construction of the Old Bridge replacement store scheduled to open in fiscal 2024, the minor remodel of the Millburn, NJ ShopRite and various technology, equipment and facility upgrades.

We have budgeted $85,000 for capital expenditures in fiscal 2024.

Planned expenditures include costs for construction of the Old Bridge replacement store scheduled to open in fiscal 2024 and two other replacement stores scheduled to open in fiscal 2025, potential real estate purchases, several smaller store remodels and merchandising initiatives and various technology, equipment and facility upgrades.

The Company’s primary sources of liquidity in fiscal 2024 are expected to be cash and cash equivalents on hand at October 28, 2023 and operating cash flow generated in fiscal 2024.

On April 28, 2022 the Company entered into a partnership agreement for a 30% interest in the development of a retail center in Old Bridge, New Jersey, which includes a Village replacement store with an operating lease obligation of $4,304 as of October 28, 2023.

Village will fund its share of project costs estimated to be $15,000 to $20,000 over the two to three year life of the project.

As of April 29, 2023, Village has invested $9,278 into the real estate partnership, which is accounted for as an equity method investment included in Investments in Real Estate Partnerships on the Consolidated Balance Sheet.

As of October 28, 2023, Village has invested $12,688 into the real estate partnership, which is accounted for as an equity method investment included in Investments in Real Estate Partnerships on the consolidated balance sheet.

On August 15, 2022, notes receivable due from Wakefern of $28,850 that earned interest at the prime rate plus 1.25% matured.

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On September 28, 2022, the Company invested an additional $30,000 in variable rate notes receivable from Wakefern that earn interest at the prime rate plus .50% and mature on September 28, 2027.

At April 29, 2023, the Company held variable rate notes receivable due from Wakefern of $30,799 that earn interest at the prime rate plus .75% and mature on February 15, 2024, $30,212 that earn interest at the prime rate plus .50% and mature on August 15, 2027 and $31,188 that earn interest at the prime rate plus .50% and mature on September 28, 2027.

At October 28, 2023, the Company held variable rate notes receivable due from Wakefern of $32,211 that earn interest at the prime rate plus .75% and mature on February 15, 2024, $31,559 that earn interest at the prime rate plus .50% and mature on August 15, 2027 and $32,578 that earn interest at the prime rate plus .50% and mature on September 28, 2027.

Wakefern has the right to prepay these notes at any time.

Under certain conditions, the Company can require Wakefern to prepay the notes, although interest earned since inception would be reduced as if it was earned based on overnight money market rates as paid by Wakefern on demand deposits.

Working capital was $63,105 at April 29, 2023 compared to $79,796 at July 30, 2022.

Working capital was $66,275 at October 28, 2023 compared to $67,714 at July 29, 2023.

Working capital ratios at the same dates were 1.36 and 1.38 to one, respectively.

The decrease in working capital in fiscal 2023 compared to fiscal 2022 is due primarily to an additional $30,017 investment in long-term notes receivable from Wakefern.

The Company’s working capital needs are reduced, since inventories are generally sold by the time payments to Wakefern and other suppliers are due.

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• A secured $7,350 term loan issued on January 28, 2022 repayable in equal monthly installments based on a fifteen-year amortization schedule through January 28, 2037 and bearing interest at the applicable SOFR plus 1.50%.

An interest rate swap with notional amounts equal to the term loan fixes the base SOFR at 1.41% per annum through

January 28, 2037, resulting in a fixed effective interest rate of 2.91% on the term loan.

An interest rate swap with notional amounts equal to the term loan fixes the base SOFR at 1.41% per annum through January 28, 2037, resulting in a fixed effective interest rate of 2.91% on the term loan.

The term loan is secured by the Galloway store shopping center acquired for $9,800 in the first quarter of fiscal 2022.

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Village also executed an interest rate swap for a notional amount equal to the term loan amount that fixes the base SOFR at 3.59%, resulting in a fixed effective rate of 5.34%.

Based on current trends, the Company believes cash and cash equivalents on hand at April 29, 2023, operating cash flow and availability under our Credit Facility are sufficient to meet our liquidity needs for the next twelve months and for the foreseeable future beyond the next twelve months.

There have been no other substantial changes as of April 29, 2023 to the contractual obligations and commitments discussed in the Company’s Annual Report on Form 10-K for the year ended July 30, 2022.

Based on current trends, the Company believes cash and cash equivalents on hand at October 28, 2023, operating cash flow and availability under our Credit Facility are sufficient to meet our liquidity needs for the next twelve months and for the foreseeable future beyond the next twelve months.

There have been no other substantial changes as of October 28, 2023 to the contractual obligations and commitments discussed in the Company’s Annual Report on Form 10-K for the year ended July 29, 2023.

This Form 10-Q contains certain forward-looking statements about Village’s future performance.

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and are indicated by words such as “will,” “expect,” “should,” “intend,” “anticipates,” “believes” and similar words or phrases.

The Company cautions the reader that there is no assurance that actual results or business conditions will not differ materially from the results expressed, suggested or implied by such forward-looking statements.

The Company cautions the reader that there is no assurance that actual results or business conditions will not differ materially from the results expressed, suggested or implied by such forward-

looking statements.

The Company undertakes no obligation to update forward-looking statements to reflect developments or information obtained after the date hereof.

• We expect the increase in same store sales to range from 1.0% to 3.0% in fiscal 2024.

• We have revised our budgeted capital expenditures downward from prior estimates to approximately $50,000 in fiscal 2023 due to the timing of construction spends for replacement stores shifting from fiscal 2023 into fiscal 2024.

• We have budgeted $85,000 for capital expenditures in fiscal 2024.

• The Board’s current intention is to continue to pay quarterly dividends in 2024 at the most recent rate of $.25 per Class A and $.1625 per Class B share.

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These include:

• The Fairway acquisition involves a number of risks, uncertainties and challenges, including under-performance relative to our expectations, additional capital requirements, unforeseen expenses or delays, imprecise assumptions or our inability to achieve projected cost savings or other synergies, competitive factors in the marketplace and difficulties integrating the business, including merging company cultures, cultivating brand strategy, expansion of food production and conforming the acquired company's technology, standards, processes, procedures and controls.

Sales and operating profits have underperformed in Manhattan due primarily to less residential, commuter and tourist traffic during the COVID-19 pandemic.

Many of these potential circumstances are outside of our control and any of them could result in an adverse impact on our results of operations, financial condition and cash flows and the diversion of management time and resources.

• The supermarket business is highly competitive and characterized by narrow profit margins.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis